Demand for fragrances remain stable, but consumer behaviour is changing

08 August 2016 Consultancy.uk

The power of perfume to allure and captivate – not merely to hide the everyday – is of the ages; in the intervening centuries, new techniques and growing incomes have seen perfume become a multi-billion dollar industry. While perfume tastes have remained relatively stable over the past decade, new research highlights that the different shopping channels show consumers to exhibit different buying behaviour.

Perfumes have been used for millennia as a way of spicing up, or hiding, everyday musk. In the intervening centuries, the process of developing perfumes has changed somewhat. The alchemy of mixing essential oils, flowers and the mystical Ambergris, has been replaced by synthetic techniques and mass production. The 1900s saw further development, as producers capitalised on growing disposable income, with new marketing techniques and new smells. Today, perfumes are available to the masses, with a variety of different tastes and smells available to the rich and poor alike.

Perfume today has become an industrialised product. In the US alone, around $4 billion in revenues were booked for perfumes in 2015. Growth within the market remains relatively modest, however, up 4% on 2014. New research from A.T. Kearney, titled ‘Dollars and Scents: Winning in Fragrances’ explores the effectiveness of a relatively new change in the market: the multi- and omni-channel for the sale of perfume, as well as the channel specific ways of enticing shoppers to buy.

Top scents continue to draw consumers

According to the research, the top sellers for both men and women have seen little change over the past five years. For women, Chanel no 5, first on the market in 1921, remains a staple scent, while the early 2000s remains the formative period for many of today’s preferred women’s perfumes. For men, there has also been little change of taste of the top smells. The 1996 Acqua di Gio remains a top seller, while the late 2000s saw the rise of scents that remain staples for many men today.

In-store and online shopping behaviour differences

While the scents have remained relatively stable over the past five years, consumer shopping behaviour has shifted towards the multi- and omni-channel. As part of the research, the firm sought to identify how consumers are leveraging the different shopping channels with regard to purchasing fragrance.

In both categories, in-store and online, replacement is the top reason to buy. Online purchases are slightly more in favour of replacement, at 42% of respondents, compared to in-store, at 36%. In-store, however, saw considerably more impulse purchases, at 19% of respondents compared to 11% for online. Gift buying is relatively equal between channels, at 12% apiece, as was trial, at 12% in-store and 13% online. Advertising has a similar effect on shoppers within both channels, at a lowly 6%.

In-store factors affecting purchase decisions

The researchers also sought to identify in how far shoppers’ buying decisions are affected by various marketing techniques leveraged by in-store factors. According to the self-assessment of respondents, promotion and discount are the most decisive factor, with 32% saying they are strongly influenced by the technique and 32% saying that they are somewhat influenced by the technique.

Service is also cited as a key driver for their purchasing decision, with 25% saying it influences them strongly and 31% saying it influences them somewhat. Free gifts comes in third, with around 50% of respondents saying that they are influenced at least somewhat by this technique.

The techniques with the least effect include spritzers, with 23% of respondents saying it did not influence them at all; a similar number said that they were not affected by point of purchase ads or materials.

Importance for online shopping say consumers

The study further considers what consumers find important when leveraging online channels to buy perfume products. The most important feature is that there is a ‘limitless’ assortment, which was cited as important by 71% of respondents. Price sensitivity comes second, with 69% of respondents citing it as very important. Free delivery – one of the hall markets of the online trade – comes third, with 58% citing it as very important and 33% citing it as somewhat important.

Of less importance to the surveyed consumers are peer reviews, with less than 50% citing it as important, product times and info, cited as very important by 14%, and an online advisor, which is cited as very important by just 8% of respondents.

Nemanja Babic, A.T. Kearney Principal and co-author of the report, states, “Today’s consumers still want the luxury and social desirability that prestige perfumes represent, but they also want value and convenience. By understanding and meeting the needs of both in-store and online customers, fragrance marketers will reach consumer segments more economically and effectively.”

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Total private wealth in China booms to estimated $28 trillion

16 October 2017 Consultancy.uk

The number of HNWIs in China has climbed from 181,000 in 2006 to more than an estimated 1.8 million this year. Total investable private wealth in China has correspondingly boomed, topping $28 trillion. Wealthy investors are increasingly focused on preserving their capital, and a range of professional service providers continue to play a key role in their wealth management.

The boom in the Chinese economy has seen its number of wealthy individuals increase significantly, with successful businesses climbing their way into the wealthy category along with the professionals who serve them. In a new report from Bain & Company and China Merchants Bank, the firms surveyed the most recent statistics pertaining to private wealth growth in China, as well as preferences relating to its preservation.

The number of high-net-worth-individuals (HNWI) in China has boomed over the past decade, increasing by more than 20% in the $1.5 million in investable assets category, by 33% in the >$1.5 million and <$15 million range, and 24% in the ultra-high-net-worth-individual (UHNWI) category, holding at least $15 million in investment assets. In total, the number of wealthy people has increased from 181,000 in 2006 to 1.87 million estimated for this year, with the number of UHNWI increasing from 7,000 people a decade ago to 116,000 people estimated for this year. The study notes that growth has tapered off slightly in the most recent period, with the two highest wealth categories decreasing the most significantly.

Growth in HMWI populationThe wealth of the country’s most affluent people has correspondingly skyrocketed in the same period, with total wealth increasing from RMB26 trillion ($3.9 trillion) in 2006 to RMB188 trillion ($28 trillion) estimated for the most recent year. Wealth creation has slowed somewhat also, falling from 20% CAGR between 2006 and 2016, to 14% CAGR between 2016 and 2017.

The allocation of wealth has fallen too, with cash as a proportion of total held assets falling. Meanwhile, considerable growth was noted in the net value of investment property and capital market products. Other areas of investment include bank wealth management products and other domestic investments.

Change in HMWI mix

The type of occupation from which HNWI derived their wealth has shifted in recent years, with the proportion of wealth generated from first generation business owners decreasing from 70% to 41% between 2009 and 2017, while the number of second generation successors has hit 10%.

The number of gold collar professionals has increased significantly – up from 12% to 29%. Both segments have tended to benefit each other’s success; the boom in tech-sector companies has created demand for high-skilled professionals, many of whom end up with company shares on top of their hefty benefits.

Wealth preservation society

In terms of generation UHNWI, businesses and professional investment remain the most successful as a proportion, although the number of professional investors as a proportion of total wealth generation has fallen from 13% to 5%. Other forms of income generation have increased from 5% to 15%.HNWI's wealth preservationRetaining capital was found to be an increasingly popular aspect of the wider value creation process, up significantly from a similar survey in 2009, although down slightly on 2013 and 2015 surveys.

The number of respondents who said wealth preservation was their main objective in 2017 stood at 26% of all respondents and 24% of UHNWI respondents, while those focused on wealth inheritance increased significantly in 2015, but stayed relatively stable for 2017. For the UHNWI, wealth inheritance was noted as slightly more important. For the other categories, both groups were relatively in alignment on objectives.

The rapid growth of financial wealth, as well as changing attitudes among the young generation of new wealth, appears to be increasing demand for asset management among wealthy individuals in China. The percentage of assets managed by an institution increased steadily from 36% to 65% between 2009 and 2015, in light of decreased focus on bank wealth management and increased focus on private banking. The most recent year saw the level of institutionally managed wealth decrease slightly to 63%, with self/family taking up the slack.China's HNWIs are turning to professional servicesThe study notes that the number of HNWI is set to continue to rise in China as new businesses arise and demand for professional services continues. Changing attitudes around wealth preservation and inheritance are both likely to continue to create opportunities for wealth managers and other financial services experts in the wider market.

According to a report from Capgemini, global HNWI wealth – one of the segments of the most affluent – reached a total of $60 trillion among 15.4 million people globally.

Related: Chinese luxury customer market to hit $1 trillion RMB by 2025.